Younger private IT cos big opportunity: ChrysCap MD

ChrysCapitalMD Sanjay Kukreja has placed several-high profile bets India’s IT services sector. The PE firm, which manages assets worth $2.6 billion, has backed India’s emerging as well as bellwether IT in the past. As ChrysCapital announced its first acquisition, Kukreja spoke to TOI on the industry’s fast changing landscape...

You have been one of the earliest investors in Indian IT services. How has the industry changed?

There are three clear trends that are currently at play in the industry. First, enterprise budgets are shifting towards customer-facing areas and that in turn is causing a shift in the allocation away from CIOs and in favour of business unit heads. Then, enterprise spends are moving towards smaller ticket-size, pay-as-you-go models, which is cannibalizing the traditional enterprise package implementation revenue streams. And finally, boutique customer facing vendors are becoming more prominent on the back of their responsiveness, agility and early lead in newer-age digital services.

So labour arbitrage is dead and some Indian companies will find it difficult going forward?

The labour arbitrage story is more or less over. All large IT companies have figured out a global delivery model that’s able to leverage talent no matter where that talent resides. The differentiation has now shifted away from the delivery to sales, as the latter is able to better understand and respond quickly to today’s ever-changing technology requirements. While Indian companies have done a good job of adapting to this new reality, the battle is far from over and they’ll need to acquire some of these boutique local vendors in the future.

ChrysCapital placed some heavy bets on Infosys and HCL some years ago. How has your strategy evolved to factor in these newer trends?

We are changing track from investing in large IT services companies to boutique vendors that have exhibited strong differentiation by being more customer centric as well as by focusing on new-age digital services, commonly referred to as the SMAC stack. Often have a cross-border model with their senior management located close to the clients. We find these companies have a better understanding of the disruptions their customers are facing.

Does this mean that you will be looking at more private companies versus investing in listed companies?

ChrysCapital’s mandate has always been flexible and geared towards getting the best risk-reward, irrespective of the type of investment. The current balance in IT sector is skewed towards younger private companies. There is a big opportunity in creating and scaling up smaller platforms around these new-age service lines that could eventually become attractive acquisition targets for the larger IT services companies.